Leasing the street
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Transcript of Leasing the street
Leasing the street: Institutional arrangements on street vendors´ property rights in
Venezuela*
Wladimir Zanoni**
Wladimir Zanoni 1
Abstract: By 2004, the informal commerce in Venezuela employed 15% of the labor force, while contributed to 3.25% of the GDP. Just in Caracas there are about 15.000 street vendors’ stands. This activity generates negative social collateral effects: delinquency, pedestrian and traffic jams, pollution, etc. Why street vending is such a widespread activity? We argue that this activity is the result of demand and supply transactions on property rights on street lots between the State officials and street vendors: vendors gain access to property rights, while public officials get either bribes, political support, or both. *A version of this paper was presented at the IX Conference of the International Society for the New Institutional Economics. Pompeu Fabra University. Barcelona. September, 2005.
** Center for the Dissemination of Economic Knowledge. (CEDICE) Caracas; The University of Chicago (MPP class of 2007). email: [email protected]
Wladimir Zanoni 2
1.- Introduction:
Official statistics show that, by 2004, informal commerce in Venezuela employed
1.5 million people (15% of the labor force) and contributed to 3.25% of the
Venezuelan GDP1. Unemployment rates (averaging 14.11% in the 1996-2004
period), high costs of doing business (e.g. De Soto et. all, 1989 pioneer study in
Peru; Pendfol, 2001 in Venezuela), and low quality of public goods (Levenson
and Maloney, 1998; Azuma and Grossman, 2002), engender positive incentives
to engage in that informal activity.
As a sub-sector of informal commerce, street vending cause concern among
politicians and the public because it generates negative collateral effects:
delinquency, pedestrian and traffic junks, pollution, property rights violations,
among others. Just in Caracas 15.000 street vendors stands’ employ up to 5
people each.2 Based on results from a case study in Caracas, we explore why
street vending is such a widespread activity in Venezuela by explaining how
institutions governing the allocation of property rights on street lots support the
activity.
Firstly, we develop a theoretical framework to explain that in the core of street
vending activity there are transactions between State officials and street vendors
in which vendors obtain informal property rights, while politicians and public
servants obtain a combination of bribes, and political support.
Our conceptual framework studies the demand and supply sides of property
rights on street lots. The analysis illustrates how the threat of over-exploitation
Wladimir Zanoni 3
of public spaces as a source of rents, which increases with the number of street
vendors, shapes their choice of institutional arrangements on those property
rights.
We also explain how the political and economic rules of the game from the
supply side of property rights sustain street vending. We assume that: a) the
costs of finding formal employment and doing business are high; b) there are
failures in the rule of law so that bribery is a widespread institution; c) formal
rules are complete and well defined, and; d) street vendors have acquired
informal rights as a consequence of low enforcement. Given those assumptions,
the stronger the political will to enforce the formal rules underlying the allocation
of property rights, the higher the bribes will be (or transaction costs) that street
vendors have to pay to either keep their already captured property rights, or to
acquire new ones. Whenever bribes increase, political support coming from
street vendors to the enforcers of property rights lowers. Thus, enforcing formal
rules put political support at risk.
To give an empirical basis to our arguments, we develop an analytical narrative
focused on the 1996-2004 policymaking period analyzing the public policies
implemented to regulate street vending activity in the city of Caracas. We show
how public policies that defined and enforced formal rules during that period
were influenced by rational political calculations of gains and loss of political
power and bribe taking. Formerly, we show some quantitative results from our
field work describing the characteristics of the property rights “owned” by street
Wladimir Zanoni 4
vendors. (Bribes paid, characteristics of the formal rules, and some features of
the current informal agreements).
2.- Towards a theoretical framework: demand and supply over property
rights on street lots3
The source of value of street vending, as an economic activity, hinges on rents
that can be extracted from property rights that street vendors acquire on Cities’
public-access spaces over which the State has the duty of instituting and
enforcing formal rules.4 The formal or informal character of the actual property
rights on street lots is the result of demand and supply forces: on one hand,
street vendors demand property rights as a productive factor, while, on the other
hand, the State monopolizes the supply of those rights. If the rule of law is
weak5, governments can use that duty as a device to extract either political or
economic rents, and vendors can gain access to informal property rights.
Informal allocation of property rights on street lots arise as the result of
transactions between the State (the supplier) and street vendors (the
demanders).
The demand for property rights:
Let us assume that the city has empty street lots. Whether those spaces be
occupied by street vendors or not, depends on how costly transaction costs are
to gain access to property rights on such locations. Given its monopoly power,
the State can either lower or increase these transaction costs by legislating
Wladimir Zanoni 5
and/or enforcing rules. Thus an increasing demand on street locations can be
associated with a lowering in transaction costs motivated by public policies. In
such an environment, the kinds of property rights that street vendors can
achieve are informal rights with the following characteristics:
a) Are the result of an underground transaction with the state;
b) Cannot be “fully” enforced by the state, as a legitimate third party
(which leads to informal enforcement mechanisms in which the state
could have certain “informal” participation);
c) Power (political, physical and financial) plays a crucial role in both
explaining how they emerge and how are its enforcement mechanisms
sustained (by physical harm, moral sanctions, or a combination of both).
In this paper we call “quasi rights” to the informal property rights arrangements
complying with the characteristics a), b) and c). Quasi-rights are insecure
structures of property rights6. The criteria for their allocation, the types of
guarantees against their infringement and the course and pattern of their change
over time are all established by individual and group leadership, (inspired, by the
need to “manage” prospective drops that scarcity imposes on the net present
value on the stream of income that they can generate).
Despite the fact that they are insecure, the value of quasi-rights is not negligible.
For instance, in Venezuelan cities it is common to find imperfect Coasean-like
agreements between shop owners and street vendors in which formal
entrepreneurs pay street vendors to “stay away” from their stores’ fronts, and in
Wladimir Zanoni 6
which formal entrepreneurs are vertically integrated with vendors who sell their
products on streets. Furthermore: realizing the degree of stability of quasi rights,
real state property owners in certain areas have proposed paying street vendors
to leave public spaces.
How does scarcity affect the new allocation of property rights on public spaces?
Let us assume that the level of enforcement posed on the rights granted to
pedestrians has been dropped to zero. At initial stages, an increase in the
number of street vendors joining the ranks of those already in existence, will
improve the sector’s average productivity by favouring external scale economies.
That initial improvement in average productivity will stop at a certain point
defined by the scarcity of physical space. Beyond this threshold, any further
increase in the number of street vendors will cause a reduction in average
income.
Scarcity of physical space, and the threat of its overexploitation, creates
incentives to improve the quality of quasi-rights, or to demand a new formal
allocation of property rights. As Furubotn and Petjovich, 1972, note: “…changes
in property rights are triggered by man’s search for greater utility”. Quasi-rights’
net present value would be lower than that coming from formal-properly-defined
and well enforced property rights. The opportunity cost of keeping quasi-rights,
instead of gaining formal rights, generates a demand for formal institutions. Thus
legal permits, tax structures, and other formal property rights allocations have
become the subject of rational demands. The distributional consequences of a
Wladimir Zanoni 7
new allocation of property rights in terms of political power is very likely to be
the source of violence and conflict (Libecap, 1989, Alston, Libecap and Mueller,
1999)
Figure 17 illustrates how different property rights structures emerge when driven
by the logic of scarcity. Y axis is net present value on public lots and X axis is
scarcity levels (inverted from right to left).
Figure 1: The demand for property rights
The figure presents three curves that relate scarcity to the net present value of
property rights: FPR (formal arrangement) IPR1, IPR2 (quasi-rights). Net present
value of property rights increases in the three cases with the number of street
vendors up to a certain point (S). Beyond point “S” the opportunity cost of not
setting formal property rights increase as much as scarcity does (as illustrated by
the difference between IPR1 and FPR). Institutions promoting overexploitation of
Net
Pre
sent
Valu
e
Scarcity
FPR
IPR2
IPR1
S
B
C
D
Net
Pre
sent
Valu
e
Scarcity
FPR
IPR2
IPR1
S
B
C
D
Wladimir Zanoni 8
streets are represented by curve IPR2, in which net present value decreases with
the growing in the number of vendors further than S.
The crossing of this threshold at point “S” generates the demand for an
establishment of property rights (either for formal ones or for an improvement in
quasi-rights) to prevent any externalities engendered by the presence of too
many street vendors which would interfere with the conduct of business,
generating negative effects on profits and therefore on net present value of
property rights.
The supply side of property rights:
Through defining and enforcing rules, the State defines formal institutions that
influence the allocation of property rights. The supply of formal property rights
over public spaces is a state’s duty; not just on the act of granting formal rules,
but also, over the degree of enforcement applied to those rules. The combination
of formal rules, plus the degree of enforcement applied upon them, characterizes
the degree of informality over property rights (North, 1990).
The existence of a set of complete, well-defined and non-overlapping rules does
not guarantee its full enforcement (North, 1990). A “weak” rule of law might
make enforcement vulnerable to political manoeuvring so that governments
manipulate enforcement as a device to extract either political (by populism) or
economic rents (by bribery).
Defining formal property rights to an asset could not alter its value in a
significant way. Besides well codified norms, the value of an asset is dependent
Wladimir Zanoni 9
on the level of enforcement (“…the credible threat to induce compliance”. Barzel,
2002) possessed by the formal rules that govern its allocation8. The positive
relationship between enforcement and assets’ value, results from the fact that
higher levels of enforcement increase the likelihood of exclusive appropriation
from the stream of income the assets generate (North, 1990; Anderson and P.J.
Hill, 1975). In other words, the value of an asset increases according to the
degree of effective enforcement devised to induce deterrence of those
considered potential violators of rights.
But the enforcement of formal rights on an asset has a twofold effect9. While on
the one hand, it increases the value of the asset to the groups to whom property
rights have been formally “granted”, on the other hand it decreases the value of
the property rights to those considered potential violators10. Thus, full
enforcement of formal property rights on public spaces, maximizes pedestrian’s
value, while augments street vendors’ transaction costs. In other words,
assuming that pedestrians “own” the rights, the stronger the level of
enforcement, the higher the transaction costs that street vendors should bear to
gain access to streets as a productive factor.
Even if formal rules are complete, well-defined and non-overlapping rules, it does
not guarantee its full enforcement (North, 1990; Furubotn and Petjovich, 1972).
Because of its effect on the value of assets, enforcement of formal rules has
political consequences: the state gains political support from the groups which
value increases, while it looses support from those groups for which the value
Wladimir Zanoni 10
decreases. Thus, the supply of enforcement of formal rules has a political side
that should not be ignored (Libecap, 1989; also implied in Demsetz, 1966;
Barzel, 1992).
However, the state’s opportunity to take advantage of the relationship between
enforcement and political support (the “misuse of public power for private profit”
Sanchez and Waters, 1974) is not always present. It is an expression of the
fragility in the rule of law, and reflects the lack of a limited form of government.
If the rule of law is weak, the politically rational level of enforcement supplied
can be set despite what is currently established in the formal rules. In other
words, such a political framework enables the opportunity for the bargaining of
property rights because of its value (Benson and Baden, 1985)11.
The efficiency of interest groups in solving their collective action problems is a
basic determinant of this policy outcome. As Furubotn and Pejovich, 1974, show:
“…changes in the content of property rights depend on the relationship between
ex ante estimate of benefits to the ruling class from reorganizing the existing
property rights assignments and ex ante or even ex post estimates of the costs
to be incurred in policing and enforcing the changed structure of rights”.
The level of enforcement has a net effect on the level of political power which is
balanced by the support granted by those benefited, and the support withdrawn
from those affected. The State’s payoffs are affected by the relative political
efficiency of the conflicting groups (benefited and affected by street vending) to
“capture the state”, whenever their status quo moves as a consequence of a
Wladimir Zanoni 11
change in the level of enforcement (Weingast, 1997). As North, 1984, points out:
“The state then becomes the vehicle by which the costs of transacting are raised
to capture the gains that will accrue to any interested party that can control the
specification and enforcement of property rights”. How effective are those
groups in capturing the state, will be an expression of how efficiently have they
solved their collective action problems (Rose- Ackerman, 1978, for corrupt
policies; and Libecap, (1989) for the general idea).
The State’s incentives to relax the enforcement of formal rules are not just the
result of a political calculus. Politicians realize that by relaxing enforcement below
the level of total deterrence, they will have an opportunity to extract bribes from
vendors. Therefore, the state’s maximization function would be comprised of two
constraints implied in reaching the maximum level of political support and the
maximum possible amount of bribes12. Thus, corruption13 becomes a “potential
danger” because government officials have the power to allocate property rights
(Benson and Baden, 1985); a danger which increases with the fragility in the rule
of law (Weingast, 1997).
Let’s us assume that: a) rules governing the allocation of property rights are
properly defined and do not allow performing street vending; b) costs of doing
business in other economic activities (formal or informal ones) and finding formal
jobs are beyond the tipping point that makes them worth it, and; c) the rule of
law is weak. In Figure 2 we illustrate the Relationships between the will to
Wladimir Zanoni 12
enforce, bribes and political support in two different cost of doing business
settings.
Figure 2: Costs of doing business, bribes and political support
(2.1) (2.2)
Where:
B: bribes amount; PW: political will to enforce formal property rights; PS: political
support; Nsv: number of street vendors; political outcome of street vendor’s
pressure strategies;
Implicit is the increasing function of B in PW (the higher PW, the higher B). In
Figure 2.1, political support variable Ps is a decreasing function on B. The more
street vendors have to pay out in bribes to allow them to gain access (or in initial
installation bribes) or to continue in the business (or in permanence bribes), the
lesser the political support Ps they give the policy-related enforcers.
The inverse relationship between bribery and political support showed in Figure
2.1 stems from the assumption of high costs of doing business, formalizing
currently informal vending activities, and finding formal employment. Relaxing
those assumptions, Figure 2.2, shows that the relationship between the value of
bribes and the degree of political support can be reversed. Whenever costs of
doing business are low, enforcement of formal rules implies moving vendors
Ps=
f (N
sv)
B=f (PW)
Figure 2.1 Figure 2.2
Wladimir Zanoni 13
from street vending to other economic activities, which might entail political
gains.14
Whenever enforcement degree lowers to zero, bribery does not necessarily
disappear. When that happens, local leadership takes the place of the third party
enforcer of informal agreements, so that part of bribes previously extracted by
the state, are now taken from local grassroots organizations´ leaders (Ostrom,
1990). If enforcement is zero, the leasing of the street becomes a private
institution. Between zero and full enforcement there are “hybrid” bribe-extracting
organizational forms that involve both local leaders and the Government officials.
Formal rules, enforcement and bribery: an analytical narrative
1996-1998: the “battles” against street vendors
With a speech ending: “…all this is about the right to work that, as you know,
Venezuelans have. I will defend that right because even in the Vatican Square
there are street vendors”15, the candidate who was later elected as Libertador’s
Municipality Mayor, ended his electoral campaign in late 199516. In January 1996
the new Mayor and the Federal District Governor signed a joint decree intended
to formally avoid street vending activity on Caracas´ sidewalks, squares and
boulevards17. Thus, the Municipality initiated its “Plan for Public Spaces
Recovery” intended to institute and to enforce formal property rights, while
promised the relocation of street vendors to new Municipality markets, yet to be
built.
Wladimir Zanoni 14
That apparently Pareto-efficient policy was expected to increase street vendors´
transaction costs on their current property rights, while granting vendors formal
property rights on Municipality markets. The basis for a successful
implementation of the policy were: a) the achievement of a sustainable
cooperative strategy between all levels of government to define and enforce new
rules, and; b) the actual building of such markets in places where vendors’ “full
income” would not be jeopardized, and their effective relocation.
New formal rules eliminating street vending included two joint decrees between
the local and regional governments (1996 and 2000) and two Municipality
ordinances (1997 and 1998)18. Their enforcement was built-into the use of public
force to cause the progressive dislodge of public spaces by actively persecuting
vendors located in key zones of high pedestrian traffic (Caracas sidewalks,
boulevards, squares and illegally occupied public terrains). While the enforcing of
new rules was progressively achieved, just a small portion of street vendors were
either relocated in the new markets (whose building was constantly postponed
due to bureaucratic delays), or given formal permits to remain in streets.19
From the beginning, the new policy was faced with political opposition from
grassroots organizations of street vendors who developed a portfolio of survival
strategies. Vendors´ “run and come back” tactic was very popular to cope with
police threats.20 Other strategies included vendors´ anger protests in front of
public buildings (Congress, Municipality, etc.), temporary kidnapping of public
servants and men in holy orders, as well as causing long hours of traffic jams in
Wladimir Zanoni 15
Caracas´ main avenues. They also tried legal actions trough the Supreme Court
to denounce the Municipality’s violation of their “Constitutional right to work”.21
Vendors even organized in “unions”, and asked the International Labor
Organization and the Latin American Workers Bureau, to mediate their conflict.
Besides street vendors’ protests, the Municipality’s councilmen and members of
Parliament actively complained about the “anti-humanitarian” policy implemented
by the Mayor.22
Enforcement strategies took into account the Venezuelan commercial year round
cycle. Labor legislation commands employees to pay, by middle November,
salary benefits that can triplicate formal employees’ monthly average income.
The income effect on the demand for final products (mostly sold by street
vendors) typically lasts until late December. January is always a low-sales
commercial season. Enforcement of rules was typically relaxed by December
when the demand on public spaces increased significantly. Each January,
thousands of vendors were dislodged from selected areas, as part of what the
ex- mayor named his “battle by battle policy”23. Frequently relocation was
ineffective because the dislodged vendors would latter try to occupy other public
spaces where the police continued persecuting them.
In the meantime, imperfect enforcement opened the gate to bribery from
medium-level officials (the police, councilmen, an other public servants) who,
taking advantage of a “waving policy”, extracted rents from street vendors by
granting them temporary informal permits in implicit “tolerance zones”. Unions of
Wladimir Zanoni 16
vendors emerged to become go-betweens for the vendors and public servants in
an attempt to “protect” their informal property rights. In many places of the city,
there were fixed weekly rates payable to unions, shared by, either the police, or
by public servants.
By the middle of 1998, the Municipality had dislodged street vendors from the
main areas of the city where they tended to congregate (in boulevards, ground
transportation terminals, entrances to metro stations and banks, and illegally
occupied markets). However, both political pressures, and failures in the policy
implementation jeopardized the credibility of the long run sustainability of the
policy.
Change in relative prices promoted by the new policy had not changed
preferences on public spaces from those who had loosed their sources of
income. Furthermore, the number of prospective street vendors had not stopped
growing (increasing the demand on streets). The political cost of enforcing rules
increased as much as relocation of vendors was ineffective.
1998-2000: the electoral environment and the enforcement of new
rules
1998-2000 was an unprecedented electoral period in Venezuela. During those
years, population voted 2 times for President, twice for Governors and Regional
Representatives, 2 National referendums approval of a New Constitution, once
for the Constituency Assembly representatives, 2 times for Parliament
representatives, 1 for Mayors and Councilmen, 1 for the Latin American
Wladimir Zanoni 17
Parliament representatives, 1 for Andean Parliament representatives and 1 time
to elect the Metropolitan District Mayor and Councilmen.24
Results of 1998 Presidential elections had a strong impact on the Municipality’s
“Plan to Public Spaces recovery. With 80% of popularity, the new President come
to power with the promise of a new Constitution. In a 1999 national broadcasted
TV program, he explicitly commanded public servants, “not to touch street
vendors”. From that moment, the Executive, who took power in early 1999,
would assume a more direct involvement in the street vendors´ matter. The
National Government designated a new Federal District Governor and, in late
1999, appointed a Commissioner to the Informal Sector Issue.
The Mayor’s political support, from the upstream levels of government regarding
the Plan for Public Spaces Recovery, was withdrawn. That fact, besides the
already mentioned failures in the implementation, limited the Mayor’s capacity to
sustain the policy. Open conflicts between the President and the Mayor, and
between the latter and the Governor were frequent and public.25 On the basis of
such public diatribe was the change in the policy orientation fostered by the
Executive, from an active enforcement policy to a low enforcement policy led by
the Federal District Government.26
By late 1999, a new low enforcement policy, generated an “overshooting” in the
demand on property rights, coming from about 10,000 former street vendors
who had been dislodged and still waited for relocation, and the unemployed (or
those in low income jobs) who, given the reduction in transaction costs, now
Wladimir Zanoni 18
considered street vending a worth activity.27 Externalities such as traffic jams,
over crowded streets, delinquency, etc., increased in frequency and impact on
society. Civil society started to claim a solution for the street vendor’s dilemma.28
In order to cope with those demands, by January 2000 the Federal District
Governor approached the Mayor to sign a new joint decree formally ending
street vending.29 That January, about 8000 vendors were moved out of Caracas´
streets. Some of them were relocated on the same public terrains from which,
two or three years ago, they had been dislodged. Informal temporary permits
were again given in “tolerance zones”.
Street vendors responded quickly and actively by using the above quoted
pressure strategies. In March 2000, by creating the National Bureau for the
Informal Sector, they denounced the violation of their rights at the Venezuelan
Supreme Court. Traffic junks and city chaos fostered by vendors’ protests
increased again in importance. Given the electoral climate, authorities relaxed
enforcement on property rights. By September 2000, street vendors had
reoccupied main Caracas´ streets.
During 1999 and 2000, public denouncements of bribery (for initial installation as
well as permanence bribes) increased substantially. New players in the game
such as blocks and street “coordinators” rose to take bribes that were formerly
collected by public servants. In some cases denouncement of bribery-involved
actions pointed at public servants in different levels of government (regional
Government, Municipality, and other public organizations).
Wladimir Zanoni 19
In 2000, the Executive fostered a candidate as Mayor for Libertador’s
Municipality who, from his electoral campaign, announced the continuation of a
“soft hand” policy, currently fostered by the Regional Government. That
candidate won elections in August 2000.
2000-2004: low enforcement
With the approval of a new Constitution in 1999, by 2000 the Metropolitan
Mayoralty substituted the Federal District Government with a newly elected
Metropolitan Mayor and new Councilmen. New Municipality Mayor and
Councilmen were also elected.
By early 2000, the Municipality announced its policy plan: “let street vendors
remain in streets until finding a structural solution to the problem”.30 That
structural solution would be reached only when street vendors had been moved
toward formal employment or had formalized their micro business. The success
of such a policy required sustainable economic growth to generate as many well
paid job places as necessary, as well as profitable investments opportunities
enough, as to absorb street vendors into the formal sector.
Such policy was early opposed by the Metropolitan Mayoralty, which favored the
plan of “recovery of public spaces to citizenship”. Political differences, beyond the
street vending matter, between the Metropolitan Mayor and the Municipality
Mayor, as well as between the latter and members of the Executive branch
(including the President), led to the restriction in the Metropolitan Mayoralty
Wladimir Zanoni 20
budget, and to the intervention of the Metropolitan Police in late 2001 by the
National Guard (which depended on the Executive branch).
Constrained in its in budget and limited in its political support from upper levels
of government, the Mayoralty advanced initiatives among which were the
recruitment of former a New York police chief, credited with slashing crime in
that city in the mid-1990s, for a 9 months security plan in 2001, as well as
issuing decrees legislating to urban planning management in critical street
vending areas (2002).31 However, those actions had a low impact upon the
actual dynamics of street vending in Caracas from 2001 and 2004.
By December 2001 low enforcement of formal rules was explicit. The Municipality
Mayor declared to media: “it must be understood that it is traditional to see
people by December trying to make more money by selling of whatever stuffs”.32
Failures in the implementations of the Municipality policy included the
ineffectiveness of several commissions appointed to deal with the problem
(mafia, legislation, granting temporary permits, etc.) and the delays in building
markets were vendors were promised to be relocated in. Additionally, the
aggregate economy was not neither growing nor decreasing unemployment
rates.
The low enforcement policy generated new, and the empowerment of already
existent local mafias. As much as the demand over property rights increased as
the result of the lowered transaction costs, local mafias that “lease street lots”
took the place of the third party enforcer. Power to enforce came from contacts
Wladimir Zanoni 21
with government officials, extended to locally based family and kinship networks,
as well as through physical force. The result of the low enforcement policy was
to redefine who supplied property rights, as an organizational response to the
changes in the transaction costs infrastructure. By that point, street vendors
pushed for the legalization of bribes.
Empirical figures about property rights
The source of quantitative and qualitative information:
Quantitative information comes from a survey on street vending activity applied
in the city of Caracas during the last quarter of 2004. We identified the 5 more
densely populated areas of street vending activity in the city and latter the
number of vendors’ stands was determined by manual counting. Based on
stratified random sampling with proportionate allocation to strata, 376 garment
stands’ were surveyed (see annexes Table 1). In March 2003 and May 2005 we
also applied two less structured surveys in one of the selected zones (Sabana
Grande) to 120 and 50 stands respectively.
Those surveys accounted for a number of questions ranging from human,
physical and financial assets, social networks incomes and expenses, to the
characteristics underlying property rights on street lots (including bribes paid).
The qualitative information was enriched with 30 recorded interviews applied to
local leaders of grassroots organizations, former and current public employees,
as well as selected street vendors from the 5 areas33.
Wladimir Zanoni 22
The quality of property rights
Results from our 2004 survey show that 67% of those surveyed declared they
did have rights to use their occupied street’s lots as a source of rents (See
annexes Chart 1). Formal rules governing the allocation of property rights were
considered, either non-pertinent in 38% of cases, or being ill defined (35%)
(Chart 2). This figure can be considered a strong indicator of weakness in the
rule of law.
When asked about who granted property right, 37% declared it was given by
public servants (the President, Major, police officer, etc.) while 21% declared
“myself” or “local leader”. When asked about what organizations granted such
rights, 56% of respondents declared it was granted by government-related
organizations, while 38% declared themselves or local grassroots organizations
(Charts 3 and 4). Both figures suggest that there is a “shared” responsibility
between the local governments and grassroots organizations in assigning
property rights. That hypothesis was reinforced by answers taken from 2005
interviews, where 95% of respondents declared that they were currently paying
different kinds of bribes to local leaders in order to either gain stability on their
current rights, or to get access to relocation programs sponsored by the
Municipality. Furthermore, survey answers regarding the source of coercion
(grassroots leader or organizations (47%) or the police (49%)) reinforce the
main idea (Chart 5).
Wladimir Zanoni 23
When ranking the degree of importance of some institutions: a) Municipality
Ordinances; b) Time occupying the lot; c) Acquiring the public lot by informally
buying it from other street vendors; d) Labour law, e) Others; we found that an
informal institution such as “time occupying the lot” was the most important
20.5% (Chart 6). When ranking which “informal factors” influence the stability of
property rights, we again found the time variable to have an important weight,
along with the frequency variable (going every day). Besides those variables,
informal networks (local leadership, government, family and friends) were
considered key factors, suggesting that networking is the basis of the activity
(Bars graph 1).
Prices of streets:
a) Street vendors declared that in 68% of cases, paying bribes to coordinators,
grassroots organizations or to the police, could give someone access to
property rights. It suggests that bribery is the core of the initial allocation
(Chart 7). When asking for the initial installation bribe amount, we found an
average of 1,436 US$ (see Bars graph 2). We also asked vendors to compare
seasonality in transaction costs implied in obtaining property rights. 93% of
surveyed vendors declared that time and money expenses in obtaining a
public lot were comparatively higher in the last quarter of the year, while
90% declared that those expenses were lower by the first quarter of the year
(Charts 8 and 9).
Wladimir Zanoni 24
We compared how bribery changes between already settled vendors, according
to three scenarios:
a) When it is near time for local elections: we can infer that close to local
elections, bribery from the Police lowers as the result of the already discussed
impact on political support. However, when the State’s will to enforce lowers,
the demand on public lots increases, so that local leaders bribe street vendors
as a device to cope with a prospective “tragedy of the commons” that would
jeopardize the group’s average income. Just 25% of the sample considered
street vendors to not be an important issue regarding local elections (Chart
10).
b) In the event of law enforcement threats: threats of law enforcement have an
increasing impact on bribes paid to Police, when compared to bribes taken
from leaders. The former is due to the public force is in charge of dislodging
vendors without taking into consideration informal institutions that involve
local leadership. Despite the fact that we have documented a number of
dislodge threats in the last ten years, 50% of surveyed have never been
moved out from their places, which obviously lessens the credibility of those
threats, diminishing the impact of dislodge threats on the actual bribe amount
payable to public authorities (local government has loosen reputation). We
found that 51% of vendors reported no increase in their permanence bribes
paid to police based on threats of dislodgement.
Wladimir Zanoni 25
c) By the end of each year: as a result of increasing demand for public spaces,
bribes paid both to the police and to the local leaders are almost in the same
rate. We explored how bribery was influenced by seasonality and founded
that in 68% of cases bribes were higher in the last quarter of the year, while
61% declared that were lower in the first quarter (Charts 11 and 12).
When asked about “permanence bribes” amounts the average was US$ 37.82
(Chart 13).
Conclusions
Institutional change requires the consensus of those with the power to set and
enforce rules (North, 1990; Ostrom, 1990). Street vending in Venezuela is a
showcase on how economic and political institutions have interacted to set a
negative incentive structure that undermines the perspectives for economic
growth and democratic development. Without highlighting how those with the
power to set rules do it, we would have just addressed a partial explanation with
limited policy relevance.
In this paper we framed our answer to the question about why street vending is
such an extended activity among Venezuelan cities in an analysis of the
interaction between the supply and demand of property rights. Thus, we were
able to develop a plausible explanation about how transaction costs structures
emerged and evolved in time and, therefore, to understand institutional
performance. Because of its relevance to address development problems from an
empirical perspective, we think that the supply and demand of property rights
Wladimir Zanoni 26
framework could be applied to frame answers to other research questions about
the causes and consequences of corruption, bribery and populism in the
developing world from a New Institutionalism perspective.
Notes
1. Instituto Nacional de Estadísticas, 2005, and Banco Central de Venezuela,
2004 respectively.
2. Figures from our empirical fieldwork. December 2004.
3. The concept of property rights we use here is taken from Libecap 1989:
“Property rights are the social institutions that define or delimit the range of
privileges granted to individuals on specific assets…”
4. For analytical simplicity, this paper assumes an organizational view of the
“State” as a vertically integrated organizational structure where the agency
problems have been solved. As suggested by Bardhan, 1997, corruption can
be a centralized operation in centrally planed economies.
5. A weak rule of law as a source of corruption has been highlighted by Rose-
Ackerman , 1978; Weingast, 1997; North, 1984; Bardhan, 1997,. A weak rule
of law could also be understood as a “grabbing hand” described by Frye and
Shleifer, 1997: “Under the grabbing hand model, government is ineffective in
providing basic services, courts are ineffective in resolving disputes and in the
extreme, agreements are enforced privately”.
6. “All these forms of ilegal markets exist because the government has (…)
attenuated or eliminated property rights” Benson and Baden, 1985.
Wladimir Zanoni 27
7. Figure 1 is based on Alston and Mueller, 2004.
8. Snidal, 1979, suggest that perfect private property rights exist whenever the
marginal cost of excluding others from consumption equals cero, which
requires fully effective third party enforcement mechanisms. Veljanovsky,
1983, also points out that the actual impact of regulation is dependent on the
level of enforcement.
9. “Property rights denote the existence of some system of mechanisms which
serve to permit exclusion of goods and uniquely to determine the
beneficiaries (and losers from) that exclusion”. Snidal, 1979.
10. This idea is based upon Yoram Barzel’s definition of economic rights which
assumes that “As the probability of theft increases, the ability to enjoy
declines” (Barzel 2002).
11. This problem has been deeply explored in Weingast, 1995: “A government
strong enough to protect property rights and enforce contracts is also strong
enough to confiscate the wealth of its citizens”; and in Grief, Milgrom and
Weingast, 1994:“…A state with sufficient coercive power to do these things
(define and protect property rights) also has the power to withhold protection
or confiscate private wealth undermining the foundations of the market
economy”. Note from the author inside the parenthesis.
12. “…crime and bribery market are interrelated because the bribe offered by an
apprehended criminal will depend on the expected reduction in the fine for
the crime which in turns depends on the severity of the crime committed”.
Wladimir Zanoni 28
Pashigian, 1975. Rose-Ackerman, 1978, also shows that income from bribes
and political support shape politicians’ utility surface.
13. “Corrupt opportunities are affected by the overall level of state intervention in
economic and social life, the discretion available to public officials, the relative
efficiency of administrative and political controls, and the form of political
competition”. Della Porta and Rose-Ackerman 2002.
14. However that might imply some costs of investing in human capital. In time,
street vendors´ human capital becomes a specific asset for the informal
sector whose market value for the formal sector decrease.
15. “Los Buhoneros del voto” El Nacional. Newspaper article. 11/26/1996
16. Although divided in five Municipalities, the Libertador’s Municipality is
Caracas’s main local level of government.
17. Before 1999, when a new Constitution was approved, the Venezuelan
President appointed the Federal District Governors (Chief of the Regional
Level of government). 1999´s new Constitution replaced the Federal District
Government by the Metropolitan Government. First Metropolitan
Government’s Mayor was popularly elected in August 2000.
18. See: Municipio Libertador (1996, 1998).
19. For instance, in August 1997, the Municipality received 17.000 petitions of
permits to use streets by December. Just 220 formal permits were granted.
Wladimir Zanoni 29
20. That network-kind strategy consisted in running and hiding, just to go back
as soon as the police had gone. The process was typically repeated many
times in a day.
21. Venezuelan Constitutional rights gave no prevalence to either the right to
work or the inalienability of public property. Local-level rules did not solve
that fundamental dilemma.
22. In November 28, 1996, a young street vendor woman died in a protest
between vendors and the Police.
23. Recorded interview with Antonio Ledezma (2005).
24. Source: Venezuelan National Electoral Bureau. Statistics Department. 2003
25. Cross-denounces of street’s leasing between the Mayor and the Governor
were frequent in such conflict.
26. That policy was based upon defending the Constitutional right to work.
27. Although there are not statistical records, vendors declared that from 1999
there has also been a boom in immigrant population coming from Peru,
Colombia, Haiti and Lebanon, to become street vendors in Caracas.
28. 57.20% of the surveyed vendors in our sample, declared to have initiated as
vendors after 1998.
29. Decree Number 3. January 17th 2000. Gobernacion del Distrito Federal.
30. El Mundo. Newspaper article. January 15 2002.
31. For instance “Declaratoria de Espacio Público Metropolitano”. Cabildo
Metropolitano de Caracas. February 20 2002. Agreement N° 0009-2002 .
Wladimir Zanoni 30
32. El Universal. Newspaper article. 12/15/2005.
33. Qualitative information was enriched by the participation of the research
team members in a number of round tables where the most relevant actors
from the public and private sector intended to design a public policy proposal
dealing with the subject (from September 2003 to June 2004).
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Annexes
Chart 1
Chart 2
Chart 1: right to use Streets
67%
33%
Yes
No
Chart 2: Formal laws are...
9%
35%
38%
18%
Well defined
ill defined
Non Pertinent
Don't Know / Don't Answ er
Wladimir Zanoni 35
Chart 3
Chart 3: Who grants property rights?
16%
8%
12%
1%
8%13%
7%
35%President
Regional level major/governor
Local level major
Police
Local leader (block)
Myself
Other
Don't know /don't answ er
Chart 4
Chart 5
Chart 6
Chart 4: What organizations grant property
rights 12%
9%
34%
6%
1%
22%
16%
National Government
Regional Government
Local Government
Ministry
Grassroots Organizations
None
Another Organization
Chart 5: people /organizations avoiding
occupation
39%
8%
49%
4%
Local Leader
Grassroots Organizations
Other Street Vendors
The Police
n=211
Chart 6: Institutions supporting property rights
18%
54%
6% 7%15%
Municipality Ordinances
Time Occupying the Lot
Buying the Lot
Labour Law
Others
Wladimir Zanoni 36
Bars graph 1
Chart 7
Bars graph 2
Bars graph 1: Informal institutions supporting property
rights
13.1% 15.2%
6.7%
14.2%
10.1%
20.2% 20.5%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Goi
ng e
very
day
Tim
e us
ing
the
lot
To h
ave
boug
ht th
e lot
To m
eet loc
al le
ader
s
Use
the
viol
ence
To b
e in c
onta
ct w
ith th
...
To h
ave
frien
ds /
rela
tiv..
Chart 7: do people take property rights by
initial installation bribes?
6%
68%
26%
Yes
No
Don't Know / Don't Answ er
n=211
Bars graph 2: Initial Installation Bribes
amount
1,436 1,470
13,953
233-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Mean Max Min Standard
Deviation
US
$
Wladimir Zanoni 37
Chart 8
Chart 9
Chart 10
Chart 11
Chart 12
Chart 10: Degree of importance for local
elections 23%
25%
20%
32%
Very Important
Important
Less Important
Not Important
Chart 11: Permanence bribes are higher by...
1%
20%
9%
68%
2%
January - March
April - June
July - September
October - December
None
Don't Know / Don't Answ er
Chart 8: Seasonality in Transaction Costs
(Higher TC)
2%
0%
95%
2%
January-March
April-June
July -September
October-December
Unasw eredNo answer
Chart 9: Seasonality in Transaction Costs
(Higher TC)
3%
0%1%
94%
2%
January-March
April-June
July -September
October-December
Unasw eredNo answer
(Lower TC)
Wladimir Zanoni 38
Chart 13
Table 1: Population and sample size
Total street
vendors’ stands
Textile products’
stands
Stands Surveyed
La Hoyada 1* 2208 660 78
El Cementerio 2*
1300 1100 100
Catia Boulevard 3*
5000 1000 99
Sabana Grande 4*
1548 893 89
Petare 5* 500 80 10
Total 10.300 3.780 376
1* La Hoyada: Area covering the historical downtown of the city and where
most of the public office-buildings are located (including regional and local
Chart 13: Permanence Bribe amounts
20%
25%
55%
Less than US$ 23
US$ 23 - US$ 46
More than US$ 46
Chart 12: Permanence bribes are lower by...
2%
20%
11%
1%61%
Enero - Marzo
Abril - Junio
Julio - Septiembre
Octubre - Diciembre
No Hay
No Sabe / No Responde
January-March
April-June
July-September
October-December
There aren’t
Don’t know-Don’t answer
Wladimir Zanoni 39
government offices). Next to retail street vendors, the area is a cluster of formal
wholesale garment vendors.
2* El Cementerio: Biggest wholesale informal garment market in Venezuela. It
provides supplies for both the formal and informal retail garment sellers
throughout the country.
3* Catia boulevard: Historically has been a “food market” for the low income
population of west-Caracas. Last 15 years has faced a boom in the number of
street vendors (particularly garment vendors).
4* Sabana Grande: 15 years ago was considered as the most important formal
retail garment cluster in the country (pedestrian mall), as well as an important
center for recreation. Today it is the iconographic example of displacement of
formal by informal activity.
5* Petare: The analogous figure of Catia Boulevard, but located in the extreme
east of the city.